a wdqi research report toby paterson and greg weeks forecasting division office of financial...
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A WDQI RESEARCH REPORT
TOBY PATERSON AND GREG WEEKS
FORECASTING DIVISION
OFFICE OF FINANCIAL MANAGEMENT
MAY 2014
The economic returns to a bachelor’s degree in Washington state
&EDUCATION RESEARCH
DATA CENTER
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Study purpose
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This paper compares the earnings of workers with bachelor’s degrees from Washington state public institutions with the earnings of workers with Washington state public high school diplomas only.
Our analysis is based on data from the Washington State Education and Research Data Center’s P-20w data warehouse.
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Hypothesized time path of earnings, college graduate and high school groups
February 2014
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Study approach
February 2014
The study assumes that college graduates differ from high school graduates in ways (measurable and unmeasurable) that affect the likelihood of attending and completing college, and also affect earnings.
The difference between the groups is sometimes called ability or selection bias. Simple comparisons of earnings by educational attainment lead to biased (over-stated) estimates of the earnings premium associated with a college degree.
We utilize a propensity score matching approach to correct for selection bias in this study.
We also estimate separate models for females and males.
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Study methodology
February 2014
The propensity score method is utilized to develop a matched comparison group.
A propensity score is the estimated probability that a high school graduate will earn a bachelor’s degree from a public Washington university or college within five years.
The propensity scores are estimated separately for each cohort and gender using logistic regression with independent variables representing:
student ability (GPA); student poverty status (FRPL); local economy (unemployment rate in county); and location (county).
Once the propensity scores are estimated for each sample member, then individual treatment group members are matched to comparison group members.
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Study methodology - Two
February 2014
This single measure then indexes all the variables in the characteristics vector and provides a selection corrected comparison of the earnings of college graduates and high school only workers.
The distributions of propensity scores have sufficient common support (overlap) to proceed with the matching procedure.
Comparison and treatment group members are matched by nearest neighbor propensity score.
We use matching with replacement (each comparison group member can be matched to multiple treatment group members).
We use the “with replacement” technique because, in some cohorts, our comparison group is smaller than our treatment group and it greatly reduces the overall distance between propensity scores.
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The cohort definitions
February 2014
Cohorts defined by Washington High School graduates in 2005 (Cohort1), 2006 (Cohort 2) and 2007 (Cohort 3).
The follow up period covers seven years after high school graduation.
Earnings differences between high school graduation and bachelor’s degree attainment (assumed at year five) are the opportunity cost of attending college.
Unemployment Insurance wage record data are the source for earnings.
Earnings data are available for 2008 - 2012.
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Extracting, cleansing and merging the data
February 2014
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Editing the data
November 2013
Study Group – All HS graduates from WA public high schools graduating in 2005-2008 (four annual cohorts: 246,663
Potential Comparison Group Members – removed those with four-year college experience: 174,205
Potential Treatment Group Members – Included those earning BA from WA public four-year college experience: 111,830
Potential Comparison Group Members – removed those with Community College experience: 74,243
Potential Comparison Group Members – removed those with post-secondary experience in other states: 54,114
Potential Comparison Group Members – removed out of state high school graduates: 25,342
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Editing the data - Two
February 2014
Removed observations with invalid data values: (treatment and comparison) leaving a total of 59,023 observation
The fourth cohort (2008 graduates) was dropped due to a lack of follow up earnings data.
PSM requires using matched pairs of treatment and comparison group members, both with follow up earnings information. We required that earnings data exist in all four quarters of a calendar year for all cohort members. The requirement that both members of the matched pair have UI wage data reduces the number available for analysis.
These constraints left 48,252 individuals, evenly split between treatment and comparison groups.
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Editing the data - Three
February 2014
Cohort\Year
Treatment Group Comparison Group
RowTotal
2008 2009 2010 2011 2012
2008
2009
2010
2011
2012
F1(2005) 1052 1027 1436 1538 1569 1052 1027 1436 1538 1569 13244F2(2006) 805 864 860 1296 1655 805 864 860 1296 1655 10960F3(2007) 370 474 552 559 962 370 474 552 559 962 5834M1(2005) 546 535 887 1137 1383 546 535 887 1137 1383 8976M2(2006) 458 460 439 841 1154 458 460 439 841 1154 6704M3(2007) 153 145 153 236 580 153 145 153 236 580 2534Column
Total338
4 3505 4327 5607 7303338
4350
5432
7560
7730
3 48252
This table summarizes the allocation of the matched groups by year, cohort and gender:
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Cohort dates (available earnings data in bold)
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Years after High School Graduation
High School
Graduation 1 2 3 4 5 6 7 8
Cohort one 2005 2006 2007 2008 2009 2010 2011 2012 2013
Cohort two 2006 2007
2008 2009 2010 2011 2012 2013 2014
Cohort three 2007 2008
2009 2010 2011 2012 2013 2014 2015
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Chart 1. College earnings premium in 2012 dollars, follow up years 1-7.
February 2014
1 2 3 4 5 6 7
-$15,000
-$10,000
-$5,000
$0
$5,000
$10,000
-$6,888-$8,358
-$9,838
-$6,208
$358
$4,775 $5,432
-$10,103
-$13,948 -$13,963 -$13,330
-$3,906
$1,516
$6,226
Bachelor’s degree earnings premium and opportunity cost (negative values) for follow up years 1-7 after HS graduation, females and males, 2012 dollars
Females Males
Follow up years
Dollars
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Chart 2. College earnings premium as a percent of HS only group, follow up years 1-7.
February 2014
1 2 3 4 5 6 7
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
-46%-47% -48%
-29%
1%
18% 19%
-52%
-59%-55%
-47%
-13%
5%
18%
Bachelor’s degree earnings premium and opportunity cost (negative values) for follow up years 1-7 after HS graduation, percent of HS only group earnings,
females and males, 2012 dollars
Females Males
Follow up years
Percent
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Chart 3. Female college earnings premium, 2012 dollars, follow up years 1-7.
February 2014
1 2 3 4 5 6 7$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Median covered earnings for bachelor's degree earners and HS diploma only, follow up years 1-7, females, 2012 dollars
Female Bachelor's degree Female HS only
Follow up years
Dollars
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Chart 4. Male college earnings premium, 2012 dollars, follow up years 1-7.
February 2014
1 2 3 4 5 6 7$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
Median covered earnings for bachelor's degree earners and HS diploma only, follow up years 1-7, males, 2012 dollars
Male Bachelor's degree Male HS only
Follow up years
Dollars
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Chart 5. Female and male college earnings premium, 2012 dollars, follow up years 1-7.
February 2014
1 2 3 4 5 6 7$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
Median covered earnings for bachelor's degree earners and HS diploma only, follow up years 1-7, both genders, 2012 dollars
Female Bachelor's degree Female HS only Male Bachelor's degree Male HS only
Follow up years
Dollars
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Chart 6. Female to male earnings differential, 2012 dollars, follow up years 1-7.
February 2014
1 2 3 4 5 6 7
-$8,000
-$7,000
-$6,000
-$5,000
-$4,000
-$3,000
-$2,000
-$1,000
$0
Female to male dollar differential in earnings after high school graduation, fol-low up years 1-7, 2012 dollars
Bachelor's degree
Follow up years
Dollars
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Chart 7. Female to male earnings percent differential, 2012 dollars, follow up years 1-7.
February 2014
1 2 3 4 5 6 7
-40.00%
-35.00%
-30.00%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
Female to male percent differentials in earnings after high school, follow up years 1-7, 2012 dollars
Bachelor's degree HS only
Follow up years
Percent
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Average out of pocket costs of attendance for follow up years 1-5
February 2014
Average for regional universities
Average for research universities
CohortTuition/Fees Books/Supplies
Tuition/Fees
Books/Supplies
1 $5,622 $1,032 $7,336 $1,028
2 $5,953 $1,031 $7,869 $1,022
3 $6,364 $1,028 $8,630 $1,019
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Questions?
February 2014
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Contact:
February 2014
Toby Paterson Greg Weeks [email protected] [email protected] (360) 902-0653 (360) 902-0660